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Energy & Precious Metals - Weekly Review and Calendar Ahead

By Barani Krishnan

Investing.com - Are oil prices at an inflection where we could see a new break higher?

Or will there be more of the same old-same old? Meaning a slide back to the previous range of $50-$53 per barrel for WTI and pop $55-$58 for Brent.

In any market situation where noise crowds out the nuances, one has to return to the basics.

The basics now suggest that amidst the din of the trade war, Brexit troubles and worries of a global recession, the only true indicator of oil’s supply-demand in real-time is weekly EIA data.

For the past six weeks, the dataset from the Energy Information Administration has been most unusual due to anemic refinery activity. After crude stock builds for five straight weeks, a surprising inventory pop last week threw the bears off and brought the bulls charging back in.

We await what next week’s EIA data brings - though without dramatic refinery comeback, more data/market flux seems certain, making a price call at this point even more difficult.

Gold, meanwhile, could have a surer footing at the $1,500 perch until Wednesday’s Fed policy decision, where another quarter point rate cut is anticipated.

Energy Review

After a midweek surge, oil’s advance slowed by Friday, raising questions on how well the upward momentum will hold in the coming week.

West Texas Intermediate, the benchmark for New York-traded crude, and London’s Brent, the global gauge for oil, settled Friday’s trade up less than 1% each after drifting through most of the day with little meaningful change.

Both benchmarks had put in a spirited performance earlier in the week on data showing strong U.S. oil consumption.

For the week, WTI ended with a 5.4% gain, reaching a 3-week high of $56.72. Brent posted a weekly advance of 4.4%, hitting a three-week high of $62.09.

Oil had seen dreary trading until the U.S Energy Information Administration surprised the market on Wednesday, announcing a 1.7-million-barrel drop in domestic crude stockpiles, versus versus analysts’ expectations for a 2.2-million-barrel build.

The EIA has also reported sharp drops in stockpiles of fuel such as gasoline and distillates in recent weeks as refiners’ run rates fell to abysmally low levels amid long plant closures to meet new maritime fuel processing standards.

Another factor supporting crude prices last week was a Reuters report hinting at the likelihood of the forthcoming OPEC meeting in December considering cuts deeper than the 1.2 million barrels per day agreed by the cartel and its key ally Russia almost a year back.

However, with at least six weeks to the OPEC meeting, any talk of production cuts at this point is price jawboning more than anything.

With a potential heightening in Brexit troubles and other worrying global data, oil may have more significant headwinds in the coming week.

“While we could see prices go even higher, I feel global macro events will determine the next move in oil, if the EIA doesn’t, and we could go on sl0ooovlll range bound again,” said Tariq Zahir, managing member at the oil-focused Tyche Capital Advisors in New York.

Energy Calendar

Monday, Aug 28

Genscape Cushing crude stockpile estimates (private data)

Tuesday, Aug 29

American Petroleum Institute weekly report on oil stockpiles.

Wednesday, Aug 30

EIA weekly report on oil stockpiles

Thursday, Aug 31

EIA weekly natural gas report

Friday, Nov 1

Baker Hughes weekly rig count.

Precious Metals Review

Both U.S. gold futures and spot gold returned to $1,500 pricing on Thursday and advanced modestly in that channel as the week ended, two weeks after dropping off the perch.

Gold is up around 17% on the year, emerging as one of the best performers among commodities in 2019, as investors plowed into the safe-haven amid currency devaluations, recession fears, Brent uncertainty and other tensions involving China and Iran.

Expectations are still strong that the Fed’s Oct 29-30 policy decision will yield in a third straight rate cut for the year and that could keep gold above $1,500 at least until Wednesday.

Still, Investing.com’s Fed Rate Monitor Tool showed a chance of only 91% for a quarter-point easing by Friday versus Thursday’s high of 95%. So, it remains to be seen if the central bank will pull the ultimate surprise by staying this time, instead of hiking.

If the Fed resists a hike, there’d be questions for sure on whether gold will finish the year at or above $1,600 as some have forecast.

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